Paul Krugman Interview

In this exclusive interview, Princeton economist and New York Times columnist Paul Krugman discusses the relevance of the Rockefellers in today's business environment of mergers, monopolies, and the new "age of the heroic entrepreneur."

Transcript

1. How does Rockefeller's dominance compare to companies today?

Well there's nobody with the same level of dominance now. Even Microsoft doesn't dominate anything the way Standard Oil did, just because it was a smaller economy then. It was bigger than anything anybody had ever seen, up to that point but it was still much smaller than ours. Our world is just too big for anybody to have the same kind of dominance that Rockefeller had, or for that matter, that [J.P.] Morgan had in banking. It was just a smaller place. It was a little bit more this human scale, even if they were sort of super-human humans. Amazingly, we do now see individuals who are Rockefeller-like in their wealth. We see companies -- although it's funny, the biggest companies in terms of number of employees, in terms of actual sheer reach, though not stock market value, but the biggest companies are actually not at all like Standard Oil was then. They're at sort of the intervening period. General Motors is still the biggest employer and it's kind of a faceless corporation with no single individual associated as head. But now we do have the [Bill] Gateses and [Larry] Ellisons and the founders of new fortune. So in a way, Rockefeller has come back.

2. Do mergers occur in the same way today as they did then?

I think, these days it's a lot less clear-cut. I mean, some of them are. The trusts were very straightforward. It was, "We are out to establish monopoly power." And some of the mergers that are happening now are probably about that, though a hundred years ago, people would admit that frankly and nowadays, you'll never hear it. They'll never commit it to paper or email. Many of them seem though to be more diffuse, they are looking for synergy, which isn't always in the eye of the beholder. They're looking for strategic advantage, which is in the eye of the beholder. That also makes it very difficult to know where the rules are. It's bad to have a merger that deprives people of the opportunity to vote with their feet. It's good to have a merger that promotes synergy, whatever that might be. I think we are mentally very well equipped to handle 19th-century trusts. And the problem is the 21st-century trusts are a little subtler than that.

3. Was Rockefeller's monopoly necessary?

In a way, at least my understanding of it is that an important part of the reason for his monopoly was that only a tremendously powerful oil company would have the bargaining leverage to compete with, to control the monopoly power of the railroads. So in a way, Rockefeller was a counter bearing weight to the power of the railroads. There were probably in the early stages, substantial advantages to that unification of resources. By the time Standard Oil was broken up, I think it's pretty clear that the usefulness of that monopoly had passed. And you can see by the fact that there don't seem to have been any big costs to breaking Standard Oil up into a number of component companies. It's probably true that in 1885, there were a lot of gains to having a unified oil industry. By 1915, they were probably long since dissipated.

4. Do you see a comparison with how Rockefeller and Gates leveraged their power?

Rockefeller built himself a control over the core business through his power. So he took one refinery after another, and he basically acquired all of the competing companies. Microsoft didn't do that in the core business, which is the operating system. But Gates did use the position in the operating system to leverage Microsoft into other businesses. I think if you had to ask how much of the business was created through that kind of semi-predatory acquisition, the answer in the case of Standard Oil, it would be most of it. And the case of Microsoft would only be some of it. There is some parallel, enough that it works.

5. Who are the new robber barons?

The first thing you notice is that there are a lot of people who have made hundreds of millions or billions of dollars while still fairly young, who have risen to head important companies that they themselves built, and who are arguably at least a little bit predatory, or enough that you can ask, "Are these guys really entitled to be where they are?" I often think about it when I talk to friends I grew up with, friends I went to school with. You know people my age, when we were making career choices, thought of business as a boring, dull, unrewarding activity. Because in the early seventies, going into business meant going to work for a big established corporation, then slowly working your way up a hierarchy. And now all of a sudden we look around, there are all these guys younger than me, who are billionaires, and out of no place. And you say, "Gee, did I make a big mistake here?" So it is really the age of the heroic entrepreneur come back again. And at least some of these entrepreneurs seem to have made their money in ways that are a little bit suspicious. So it's the robber barons in a sort of kinder gentler form.

6. Rockefeller was a case study in developing antitrust laws.

I guess it sort of has to happen this way, that the businessmen seizing opportunities to create market power are always going to be ahead of the regulators finding things that need to be stopped; because after all, the businessmen are paid more to do that job. I don't think it's conceivable that before Rockefeller began acquiring all of the refineries, that someone could have drawn up legislation to stop that, because it didn't occur to anybody. That's why Rockefeller was Rockefeller. And I don't think anybody could have drawn up legislation in 1980 to stop one company from dominating the operating system of personal computers. That wasn't an issue until we woke up and discovered that Gates had done it.

7. What is Rockefeller's current status among experts?

The funny thing is I think he seems kind of an antique figure. If you actually ask, who is the founder of the giant corporation, we don't look back to Rockefeller anymore. We look back probably to Alfred Sloane, who put together General Motors, who was not himself a vastly wealthy man and never became one. And he was not a huge public figure. In a way, the age of the robber baron went away. The robber barons faded into the background. And we now look back towards the original men in gray flannel suits who founded the big bureaucratic companies that dominated our economy up until the 1980s. Economists also I think are lagging behind. I don't think we've fully noticed that the robber barons are back and that in some sense, that Bill Gates or Larry Ellison are the spiritual descendants of John D. Rockefeller. I think if you went around and asked my colleagues, what do you think of the organization and career of John D. Rockefeller, they probably wouldn't know that much about him, because it seemed like he was, you know, it's like talking about Henry V or something. He's a historical figure of no relevance, except he is.

8. What do people not realize about Rockefeller?

I think that if Rockefeller hadn't existed, we would have invented him, that there was going to be a Rockefeller one way or another -- maybe 10 years later, maybe less effective. But there were things like Rockefeller emerging all around the world, even in the oil business. I mean Standard Oil wasn't the only giant oil company that was emerging about that time. And in other countries, similar things were happening. But the big multi-unit business that controls an industry without having it all controlled from just one or two factories and the globe-spanning operations, all of that is something that really became visible with Standard Oil. And so that's Rockefeller's creation. The corporation, as opposed to the factory, I think in a way you could almost say is what he brought us.